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The Battle Over Tariff 8: What the Recording Industry Isn’t Saying About Canada’s Internet Streaming Royalties

Over the past month, Music Canada, the lead lobby group for the Canadian recording industry, has launched a social media campaign criticizing a recent Copyright Board of Canada decision that set some of the fees for Internet music streaming companies such as Pandora. The long-overdue decision seemingly paves the wayfor new online music services to enter the Canadian market, yet the industry is furious about rates it claims are among the worst in the world.

The Federal Court of Appeal will review the decision, but the industry has managed to get many musicians and music labels worked up over rates it labels 10 percent of nothing. While the Copyright Board has more than its fair share of faults, a closer examination of the Internet music streaming decision suggests that this is not one of them.

The Music Canada claim, which is supported by Re:Sound (the copyright collective that was seeking a tariff or fee for music streaming), is that the Canadian rates are only 10 percent of the equivalent rate in the United States. That has led to suggestions that decision devalues music and imperils artists’ livelihood.

My weekly technology law column (Toronto Star version, homepage version) argues the reality is far more complex. First, Internet streaming services pay rights holders several different fees reflecting various copyrights (as many as six copyrights are triggered by the services). In fact, the Re:Sound fee is only part of the overall payment structure that includes royalties to copyright collectives that represent songwriters and music publishers such as SOCAN, SODRAC, and the Canadian Musical Reproduction Rights Agency (CMRRA).

Unlike the Re:Sound royalty, which is based on a set fee per 1,000 streams, the other collectives were willing to bet on growing revenues for digital music by taking a percentage of revenue approach. Music Canada (then known as the Canadian Recording Industry Association) remarkably opposed the proposed fees for the other collectives, arguing that they were “grossly excessive” and that it did not think “composers and publishers should share in any increase in profit in the market.”

For many artists, however, revenues come from multiple sources. In fact, there are Canadian fees that are not paid at all in the U.S. For example, while there is a fee for the reproduction of musical works in Canada, U.S. webcasters do not pay a similar fee. Moreover, the fees paid in Canada for performing rights of songwriters and publishers are higher than those in the U.S.

Leaving aside all the other fees payable to artists and the industry, are the Re:Sound fees really so unreasonable? The specific rate is considerably lower than the U.S. equivalent, however, the Copyright Board notes that comparing the two makes little sense. Due to international copyright obligations, the Canadian repertoire during the period of the tariff was about the half as large as the U.S. one. That means that even a simple comparison would result in cutting the U.S. rate in half.

The Copyright Board relied on commercial radio rates as their barometer, which seems appropriate given the similarities between an Internet streaming service that does not allow users to select specific songs and a commercial radio station that plays a regular music rotation. Indeed, Pandora describes itself as an Internet radio service that adapts playlists to user feedback and offers advertising opportunities to local and national businesses.

While much of the grousing about the Copyright Board decision appears to be about how to apportion payments among rights holders, the irony is that since all of the recent decisions apply retroactively to an earlier time period, they do not directly involve Pandora, which is still not available in Canada. Proposed rates for the future will probably account for the repertoire issue (Canadian law changed with the 2012 copyright reform package) and should be based on a percentage of revenue, which Re:Sound is now willing to accept.

Ironically, when the music streaming industry complained about Re:Sound’s initial demands, its CEOencouraged them to participate in the regulatory process, noting that “it’s up to the Copyright Board to determine what is effectively the fair market value of these rights.” Now that the board has done that – and provided much needed certainty in the process – the recording industry has changed its tune, claiming the decision will “undermine the business environment.”

Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can reached at www.michaelgeist.ca.

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